Correlation Between Gear Energy and Whitecap Resources

Can any of the company-specific risk be diversified away by investing in both Gear Energy and Whitecap Resources at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Gear Energy and Whitecap Resources into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Gear Energy and Whitecap Resources, you can compare the effects of market volatilities on Gear Energy and Whitecap Resources and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Gear Energy with a short position of Whitecap Resources. Check out your portfolio center. Please also check ongoing floating volatility patterns of Gear Energy and Whitecap Resources.

Diversification Opportunities for Gear Energy and Whitecap Resources

0.31

Correlation Coefficient

Gear Energy  Whitecap Resources

Weak diversification

The 3 months correlation between Gear and Whitecap is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding Gear Energy and Whitecap Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Whitecap Resources and Gear Energy is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Gear Energy are associated (or correlated) with Whitecap Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Whitecap Resources has no effect on the direction of Gear Energy i.e., Gear Energy and Whitecap Resources go up and down completely randomly.

Pair Corralation between Gear Energy and Whitecap Resources

Assuming the 90 days horizon Gear Energy is expected to under-perform the Whitecap Resources. In addition to that, Gear Energy is 1.02 times more volatile than Whitecap Resources. It trades about -0.07 of its total potential returns per unit of risk. Whitecap Resources is currently generating about -0.02 per unit of volatility. If you would invest  692.00  in Whitecap Resources on December 29, 2024 and sell it today you would lose (41.00) from holding Whitecap Resources or give up 5.92% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	45.9%
Values	Daily Returns

Gear Energy  vs.  Whitecap Resources

Gear Energy

Risk-Adjusted Performance

Very Weak

Over the last 90 days Gear Energy has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's technical and fundamental indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Whitecap Resources

Risk-Adjusted Performance

Very Weak

Over the last 90 days Whitecap Resources has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Whitecap Resources is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Gear Energy and Whitecap Resources

The main advantage of trading using opposite Gear Energy and Whitecap Resources positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Gear Energy position performs unexpectedly, Whitecap Resources can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Whitecap Resources will offset losses from the drop in Whitecap Resources' long position.

The idea behind Gear Energy and Whitecap Resources pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.